Why is this ASX lithium stock crashing 16% today?

Why is this stock having such a poor start to the week?

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It has been a tough start to the week for the Winsome Resources Ltd (ASX: WR1) share price.

The ASX lithium stock has returned from a trading halt this morning and crashed deep into the red.

At the time of writing, the lithium developer's shares are down 16% to 81.5 cents.

Why is this ASX lithium stock crashing?

The catalyst for this weakness has been the completion of the company's equity raising this morning.

According to the release, firm commitments have been received for a $25 million equity raise at a weighted average price of approximately $1.00 per share.

Winsome Resources notes that it is taking advantage of Canadian flow through provisions with this equity raising before rules change next week. This essentially allows an exploration company to raise funds at a higher price thanks to favourable tax credits.

So much so, the ASX lithium stock was able to raise $13.2 million at $1.275 per new share. This represents a sizeable 32% premium to Winsome Resources' last traded price.

However, there are some shares changing hands for a big discount. A share placement has been undertaken alongside the Canadian flow through financing to raise a further $11.8 million at a discount of 85 cents per share.

Why is it raising funds?

Management notes that the funds will be used to advance key project initiatives.

This includes the Adina Lithium and Renard project studies, which are on track for completion in the third quarter of 2024, and exploration and resource growth drilling to expand the current mineral resource estimate of 77.9Mt @ 1.15%.

It also notes that the equity raising means that the ASX lithium stock is in a strong financial position to continue its transition from lithium explorer to project developer.

Winsome Resources' managing director, Chris Evans, said:

Winsome Resources is firmly committed to developing the Adina Lithium Project and is pleased to see the high level of interest from high conviction investors who believe in Winsome's vision of integrating into the North American EV supply chain.

The flow through financing provisions under Canadian tax law mean we are again able to raise funds at a significant premium to the current share price and therefore at a lower cost of capital. The additional funds put Winsome in an enviable position, with one of the largest and growing lithium deposits in North America, an exclusive option to acquire the billion-dollar Renard operation and associated infrastructure and a clearly defined pathway to production.

Following today's decline, this ASX lithium stock is down more than 50% over the last 12 months.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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